Support and resistance are two points that indicate positive and negative reversals, respectively, in trading. Support shows the level where traders or investors are ready to buy, causing the buying momentum to emerge while selling pressure diminishes. In resistance, the buying strength starts to peter out, exhibiting buyers' exhaustion at that level and sellers' entry into the market.
Avdhut Bagkar | Business Standard
What does support and resistance tell you?
The first sign of a change in trend can be identified by support and resistance levels.
The strength of a counter depends on the ability to hold support levels and cross resistance range.
The strategies of support or resistance levels may vary for each stock. The same technical tool may not hold true for every counter.
Deep study of support and resistance helps in early entry or timely exit.
For a short-term trade, small moving averages can be employed. However, from a medium-term perspective, a larger moving average needs to be taken into consideration.
Different ways to identify support and resistance levels:
Fibonacci ratio highlights support and resistance levels based on the extent of retracement in terms of percentage. The phenomenon caters to the likely percentage retracement of a strong rise that may see an addition in volumes. The Fibonacci retracement levels are 23.6 per cent, 38.2 per cent, 61.8 per cent, and 78.6 per cent.
Simple moving average is an average of price for a certain period of time that helps determine support and resistance levels. The major moving averages are 50-day moving average (DMA), 100-DMA, and 200-DMA. Whenever the counter is hesitant towards climbing further, it may correct towards one of the moving average levels. These averages say that buyers should regain upside on the average traded price of the specified days.
Trendline is plotted considering the points where the counter witnessed buying reversals in the past. Two or more points are selected to draw a line that shows trendline support. This line may be sliding or horizontal, depending on the reversal points. CLICK HERE FOR THE CHART (Lupin chart)
Gap up / Gap down combined with volume also help identify short-term bottom or top. These levels become support or resistance for few forthcoming sessions. Technical indicators like Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) also help in understanding the strength levels.
Why understand support and resistance levels?
Unless supports or resistances are broken, the trend may not develop into a strong rally. When resistance is crossed on the higher side, the next leg of upside may emerge, triggering volume-supported buying. Similarly, when a major support gets breached, the selling pressure provides greater opportunity to “short sell” traders.
If the price holds the support level and shows a reversal with positive formation on charts or technical indicators, then medium-term perspective becomes stronger. Such technical formations alter the medium-term perspective, resulting in an overall trend becoming positive which favors intraday or very short-term trades.
Disclaimer: This information is from a third party—Business Standard—offered through a tie-up to Kotak Securities customers for free for life. This information is provided “AS IS” and “AS AVAILABLE” basis and Kotak Securities Ltd make no representation or warranty of any kind , express or implied regarding the accuracy, adequacy, validity , reliability , availability or any completeness of the information provided herein. The third party content is not created or endorsed by any business offering products or services through it. The provision of this third party content is for general informational purposes only and does not constitute a research call, recommendation or solicitation to purchase or sell any security or make any other type of investment or investment decision. Also, the views and opinions stated in the content belong to Business Standard. Kotak Securities does not uphold nor promote any of the views. These reports do not, in any way, qualify as a Kotak Securities research report.. KSL holds no responsibility of any kind as regard to any discrepancies, errors, omissions, losses or damages. For data reference to any third party in this material no such party will assume any liability for the same. Kotak Securities Ltd and/or any affiliate of Kotak Securities Ltd does not in any way through this material solicit any offer for purchase, sale or any financial transaction/commodities/products of any financial instrument dealt in this material.. Kotak Securities Ltd (including its affiliates) and any of its officers directors, personnel and employees, shall not liable for any loss, damage of any nature, including but not limited to direct, indirect, punitive, special, exemplary, consequential, as also any loss of profit in any way arising from the use of this material in any manner. All recipients of this material should before dealing and or transacting in any of the products referred to in this material make their own investigation, seek appropriate professional advice.. The recipient alone shall be fully responsible/are liable for any decision taken on the basis of this material.. No part of this material may be duplicated in whole or in part in any form and or redistributed without the prior written consent of Kotak Securities Ltd. This material is strictly confidential to the recipient and should not be reproduced or disseminated to anyone else.
The analysis has been done by a Business Standard reporter who is a certified technical analyst. The analysis does not represent the views of Kotak Securities.
A few links for further reading
Insecure and uncertain in insurance business as Covid-18 damage claims mount
Insurance companies around the world were sailing smoothly, helped by growth in emerging markets and strong capitalisation. Things changed in late February when markets realised that Covid-19’s impact on insurers could be significant. Insurers are yet to know the full impact of the crisis as governments and regulators nudge them to give moratoriums to policyholders and quickly settle claims too. India’s insurance regulator has set strict deadlines for medical insurers to settle Covid-19 claims. General insurers face damage claims from businesses devastated by the national lockdown to contain the disease. Is insurance secured to survive, Joydeep Ghosh explains
There was a time when pay cuts we see today were a complete no-no; govt and public sector jobs were considered safe, as pay and pensions were both assured. Not any longer, it seems, writes T N Ninan
Quick approval, grace period
The COVID-19 pandemic has brought home the significance of health and life insurance like nothing else earlier. Even those who were blasé about these covers in the past are now looking to buy a new policy or want to enhance the sum insured on their existing ones. Meanwhile, the Insurance Regulatory and Development Authority of India (IRDAI) has been issuing a slew of guidelines to health/general and life insurance companies aimed at easing matters for customers.